Apple, Ericsson end patent lawsuits, to develop 5G phones

STOCKHOLM: Swedish telecoms giant Ericsson has reached a global licensing agreement with Apple that settles several earlier patent disputes between the two companies, Ericsson announced. Shares of telecom giant Ericsson (ERIC) are high by 40 cents, or 4%, at $9.54, after the company this morning announced the end to a long and drawn out battle with Apple (AAPL) that had weighed on its shares for over a year, signing an agreement to license each others’ patents and drop litigations against one another. Ericsson, the world’s largest wireless equipment maker, did not reveal terms of the deal Monday but said it includes a cross-license that covers patents owned by both companies, including the GSM, UMTS and LTE standards used in mobile technology. While Ericsson no longer makes mobile phones, it remains a leading manufacturer of equipment for mobile networks, and has more than 35,000 technology patents and 100 patent-licensing agreements worldwide.

Apple, the No. 2 smartphone maker with a 13 per cent global market share according to research firm Gartner, will make an initial payment to Ericsson, followed by royalties. The Swedish company said in February the patents concerned the technology in older and current-generation mobile systems, as well as for features like live streaming of television shows and accessing apps on phones. Though the monetary sums involved were not disclosed, investors liked what they were hearing and Ericsson’s share price was up 5 per cent at 82.35 kronor in late-afternoon trading in Stockholm. Apple filed a legal complaint in January against Ericsson, claiming the patents were not up to industry standards and that the Swedish group had asked for excessive royalties for them in its licensing renewal offer.

Companies will collaborate in multiple technology areas, including 5G development, video network traffic management, and wireless network optimization Including positive effects from the settlement, and including the ongoing IPR business with all other licensees, Ericsson estimates full year 2015 IPR revenues will amount to SEK 13-14 b. In February, Ericsson filed complaints on 41 patents for technology used in iPhones and iPads after Apple declined to renew a licensing agreement for Ericsson’s mobile technology, saying the Swedish provider was asking for too much money. Monday’s agreement comes in an industry riddled with litigation over patents — companies sue each other for alleged copying appearances of products, with one study finding more than 250,000 patents in a smartphone. There is, however, a downgrade of Ericsson this morning, from RBC Capital Markets’s Mark Sue, who cut his rating on the share shares from Outperform to Sector Perform, and cut the company’s price target a buck to $10, writing that capital spending by carriers is something of a “headwind,” given it will be “flat to slightly up.” The issue is “workloads are migrating at a fast rate to the public cloud,” writes Sue, and that is causing some uncertainty, and disruption, to spending.

In the latest round of a long-running fight between Samsung and Apple, the South Korean company has appealed a $399 million judgment for illegally copying patented aspects of the look of Apple’s iPhone to the U.S. But he does expect there should be some spending by AT&T (T) and Verizon Communications (VZ), among others, who have to build out the metro networks to accommodate the burgeoning cloud data centers: 2016 is expected to be the year of metro and Cloud connectivity. Over the course of the year, we expect to hear more about shifts in spend towards software with AT&T’s Domain 2.0 and the recent close of AT&T’s DirectTV deal could signal investments ahead for the carrier’s satellite network.We are of the view that that backdrop for capex at tier-1 providers may signal relative improvement as we head into CY16 after what has been a relatively uncertain CY15.

CY15E, which is slated to finish near $38B, and we expect that trends towards increased software allocations will continue with conversations around SDN and Network Function Virtualization (NFV) becoming more focused on planning cycles rather than on conceptual frameworks.